Using Complex Copyright Law To Take Advantage Of Artists

By Jeff Price

The last article talked about how the old school music industry found a way to steal money of yours that you never even knew existed. This article describes how some companies use “slight of hand” and complex copyright law to take money from right under the artist’s nose.

Here’s how it works.  In the United States, each time a song is “reproduced,” the songwriter (not the record label) is legally required to be paid $0.091 (a little less than a dime) for something called a “mechanical royalty.”

As an example, a song bought and downloaded from iTunes (or any digital store) is legally considered to be a “reproduction,” therefore each and every time a song is downloaded from iTunes the person who wrote the song (meaning you, or someone else if you covered the song) must be paid the mechanical royalty of $0.091.

If the song is bought and downloaded from iTunes one thousand times, the person who wrote the song must be paid 1000 x $0.091: a total of $91.  Legal statute requires the songwriter to be paid this “mechanical royalty” for each and every reproduction (hence the “statutory” rate).

In the United States, music services like iTunes, AmazonMP3, etc. give the record label the money owed for the “mechanical royalty,” and the record label must account to and pay the songwriter.  Outside of the United States the “mechanical royalty” is paid to a third party collection agency where it sits until you get it. If you don’t get it, they give it to others.  (you can read more about that here )

For example, let’s say you cover the song “Let It Be” written by John Lennon and Paul McCartney.  You then put your recording of that song on iTunes U.S. and it sells one copy.  iTunes U.S. pays out $0.70 and then, depending on how you got your music on iTunes, you get some or all of it.   From the money you get from the sale of your recording from iTunes in the United States, $0.091 must be paid to Paul McCartney and John Lennon (they wrote the song) for the mechanical royalty (they split the $0.091 50/50 as they each “own” half the song).

If you wrote the song that sold, this $0.091 goes to you.  That’s the law.

So here’s the slight of hand trick some use: let’s say an artist uses a company that takes a percentage of the money from the sale of music to get into iTunes.  A copy of the artist’s recording sells in iTunes U.S., so iTunes U.S. pays out $0.70.  The company takes a percentage — let’s say 9% of the $0.70.  Guess what, they just took 9% of the money going to the record label and 9% of the money going to songwriter.

That’s illegal.  And I can assure you John and Paul did not approve of this company taking 9% of their mechanical royalty money.  The same holds true for you.  If you wrote a song and someone covers it and it sells, this company would be illegally taking 9% of your mechanical royalty.

Now this other company might say: “No, we did not touch the $0.091 owed to the songwriter, we only took 9% of the money owed to the record label.”

Really?

They took 9% of $0.70 but they tell you, the artist, they are only taking 9% of what the you as the record label make.  Therefore, the percentage this company is taking from the artist is either higher than the 9% they claimed, (in which case they are misrepresenting to the artist how much of his or her money they are taking), or they stole from the songwriter.

Which one is it?   Steal from the songwriter or misrepresent the percentage they are taking?

Once again, complex copyright law allows these companies to use financial slight of hand to either illegally take money from the songwriters or misrepresent to artists the percentage of their money they are taking.  And once again, the complexity of copyright law allows for someone to give with one hand and take it back with the other without your even knowing it.

This really needs to stop.  And frankly, why the hell don’t they take a moment to explain these laws and processes to artists? (for more on this, see the articles on how they steal your money and how they don’t tell  you what you get paid.)  Is it ignorance, purposeful or something else?  We all work for you!  This is our job. Without you, none of these services, TuneCore included, would have a business.  This music business can be transparent and honest, the only thing holding it back is that there are people in positions of power choosing to operate in secrecy or prey on the less educated.  Fortunately, this has no choice but to change as more and more information comes to light.  It was hard to scream thief when you didn’t see them stealing from you, now you can.

The purpose of TuneCore is to make the world better for artists, and it takes the power of you to make that happen.  The more you know: how your rights make you money, where that money sits, how much you are supposed to be paid, and what your six legal copyrights are, the faster it will happen. Combine this knowledge with the transparency and efficiency technology brings and no amount of misdirection or slight of hand will be able to stop you from seeing what’s actually happening.

And that’s when they finally get driven out of town.

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AUTHORS NOTE ADDED July 20th at 9:50PM Eastern

As a few people are attempting to mislead readers of this article, I thought it best to provide the math:

a song sells for $0.99 in iTunes US
iTunes US pays out $.070
This service takes 9% of $0.70 = $0.063

That’s NOT 9% of “Your Money”.

(side note, sure hope they do not round up on you and take $0.07 or they would be lying again – in any event…)

The person that wrote the song (or the entity that controls the copyright) must get $0.091 for the “reproduction” of the song that occurred when there was a sale of the recording of the song.

If you covered the song “Let It Be”, you would owe the John/Paul $0.091 for the reproduction of the song when it was bought (not before it was bought).

Therefore, “your money” is not $0.70, your money is $0.70 – $0.091 = $0.609

They should only take 9% of $0.0609 NOT 9% of $0.70

But they take 9% of $0.70. Therefore the true % they take from you is 10.5%

If a song sells outside of the United States, the service only takes their 9% of the money owed to the label NOT 9% of the money owed to the label AND the songwriter.

Here is the math. Assume a song sells in iTunes in Germany. iTunes pays the label .68 Euros and the songwriter 0.021 Euros. They only take 9% of the .68 Euros.

Now lets go to the US.

iTunes pays the label $0.601 and the songwriter $0.091 but they take 9% of $0.70

So in the US the rate is over 10% whereas outside of the US their rate is actually the 9%

You tell me, since when does 10.5% equal 9%? Only in the old “screw the artist” industry

One last point, record labels in the US that use back-end model distributors have legal clauses in their agreements that state the distributor is only allowed to take a % of the record label share.

Jeff

How Do You Know What You’re Missing If You Don’t Know What You’re Owed?

By George Howard
(follow George on Twitter)

You’re an artist — a songwriter.  Your song is played on the radio. Because you wrote the song, you — and you alone — have the exclusive right to “publicly perform” your song (it’s one of the six exclusive rights you get when create a copyright).  The radio station that played your song didn’t get your direct permission to play the song you wrote. They didn’t have to. Instead, they paid a fee to the Performance Rights Organizations (ASCAP, BMI, and SESAC).  In exchange for this fee, the Performance Rights Organizations (PROs) issued the radio station a license that gave the station the right to play (publicly perform) the copyrighted songs of any artist who have affiliated with the PROs.

You — as a responsible writer, and a writer desiring to be compensated for your work — affiliated with a PRO.  In so doing, you granted the PRO with whom you affiliated the right to negotiate on your behalf with those who publicly perform music (radio stations, TV networks, venues, restaurants, etc.).  Additionally, you granted the PRO the rights to issue licenses on your behalf, and — perhaps most importantly — collect on your behalf and distribute this money to you (after taking their cut for overhead).

All good, right?  Obviously, a clearinghouse agency (the PROs) needs to issue these blanket licenses.  The alternative — anyone desiring to publicly perform someone’s copyrighted work having to negotiate on an individual-by-individual basis — is far too inefficient.

There is a problem, however.  Going back to the hypothetical at the top: a songwriter who has affiliated with a PRO (and submitted her song submittal form to said PRO) having a song played on the radio.  How much did she earn? How much did that station actually pay her for the right to use her exclusive copyright?

I’ll be damned if I know.

This doesn’t seem like it should be too hard to determine, right?  Obviously, a smaller station (one with fewer people listening) will pay less than some mega-watt station (with millions of listeners).  No one is saying there isn’t a range of what is paid, but there should be a way to accurately define and communicate what you earn when your property is sold.

Imagine if someone wanted to use your real property (your house, your car), and said they’d make sure you got paid for this usage, but they wouldn’t tell you how much.  Would you do that?  Of course not.

And yet, that’s precisely what’s happening with public performance royalties.  Sometimes you get paid; sometimes, if you haven’t earned “enough,” you don’t.  In either case, getting any sort of precision about what you’re owed is…impossible.

How does one build a business with this “anti-data?”

I’ve been singing from the rafters for some time now saying that the continuous, consistent, systematic obfuscation around the rates associated with public performance (particularly, with respect to streaming) is the type of hindrance that keeps the “smart money” — and thus, innovation — out of the music business.

I have my fingers non-optimistically crossed that an undeniably innovative and fantastic service like Turntable.fm can emerge from this gauntlet of obfuscation unscathed enough to still hold any value (is Turntable.fm interactive (sort of)? Non-interactive (sort of)?).

It’s one thing to be frustrated by how this information fogginess has an impact on the development of new business models, but it’s personal when the same haze of information creates yet another barrier for the individual artist.

This is decidedly non-trivial.  As we hurtle inexorably towards a “business model” that dominantly revolves around income derived from public performance (streams), as opposed to income derived from the sale of downloads/physical, what once was sort of the cherry on top of the sundae, is now the entire dessert.

For any artist hoping to sustain their art on their own terms, they must devise a plan that includes multiple revenue streams.  For most of these streams — income from gigs, income from subscriptions, income from merch, etc. — forecasts can be generated and refined.  However, for arguably the most material income stream — uh, streams — no such forecasting can occur.

You can’t build a business without information.

Additionally, this lack of information extends out to individuals in a very odd and disquieting manner: PROs frequently enter into deals with entities who represent a group of writers, and yet the PROs will not disclose the terms to these writers who they (the PROs) represent. While I understand the elements of non-disclosure agreements, the fact remains that if I hire a third party to negotiate on my behalf, I should be able to know the terms of this negotiation.

The PROs for too long have not been held accountable.  It’s high time we begin demanding more transparent information with respect to the money collected and paid out.  Additionally, we must demand more transparent and understandable rate structures around public performance.

One of the main reasons the PROs have been able to ignore the (perhaps muffled) calls for more clarity and accuracy has been because they’ve enjoyed a virtual monopoly (or oligopoly) for nearly 100 years (ASCAP was founded in 1914).

Fortunately, technology has created easier ways to track public performances and a PRO is not needed for digital public performances (i.e. streams).  Instead of helping the songwriter, the PROs inadvertently get in the way, take more money from the songwriters, pay out less frequently (if at all), and no one has any idea what the rate per stream is supposed to be to know if they are being paid the right amount.

This is exactly why TuneCore is launching a new service to protect songwriters.  TuneCore is able to go directly to these entities and get this money — all of it — back to the songwriters more quickly and get more money into their pockets.

With transparency the world changes, money cannot be as easily taken or misappropriated, decisions and business plans can be made, and shoulder shrugs of “I don’t know” will no longer hold water.

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George Howard is the former president of Rykodisc. He currently advises numerous entertainment and non-entertainment firms and individuals. Additionally, he is the Executive Editor of Artists House Music and is a Professor and Executive in Residence in the college of Business Administration at Loyola, New Orleans. He is most easily found on Twitter at: twitter.com/gah650

TuneCore Artists Featured In Digital Stores – July 2011

Bizzle – iTunes Hip Hop Page 7/5

Blood On The Dance Floor – IMVU Featured Single July 5th

iTunes Indie Spotlight – Hip Hop (featuring Dom Kennedy, Tedashii, Blue Scholars, & Mark Deez)

Josh Ritter – iTunes Singer/Songwriter Page 7/12


iTunes Comedy Page 7/12 featuring: Jon Lajoie, Jonny Loqua$to, Your Favorite Martian, Jen Kirkman

Howie Day – iTunes Singer/Songwriter Page 7/20


They Might Be Giants – AmazonMP3 Newsletter Feature 7/20

For the full roundup of TuneCore Artists featured in July (so far!), check out our slideshow below…

(To view larger images, click on them and head to our Flickr page.)

Lacerda: Fresh Off The Warped Tour

Though they’re based in Toronto, the members of Lacerda seem to be spending most of their time in the states.  The rock band, composed of Milenko (vocals), James Watkins (guitar, vocals), Bryan Baker (guitar, vocals) and Brad Sharkey (drums, “classic good looks”) have just returned from their second Vans Warped Tour, though it was the first one for which they’d been promised shows prior to hitting the road. Read on to hear about the struggles of being on the tour, and why they consider themselves lucky to be independent musicians.

Without using the words “alternative,” “pop,” or “rock,” or “hip-hop,” describe your sound.
An endearing, experimental blend of passion and catchiness.

You just concluded your shows on the Warped Tour! What was the experience like?
The experience on Warped Tour for an independent band challenges even the most experienced touring veteran. It is hot, sweaty, chaotic, and the working hours never seem to end. We drive ourselves, set up and sell our own merchandise, and load and set up our own gear on top of playing. Despite all the negatives, it is an extremely positive and rewarding experience.

What did you learn about yourselves by playing all of those shows?
We learned that hydration and nutrition are a top priority when braving such brutal heat. Above all we learned to put all of our mental focus into the half hour that we get on stage everyday.

What did you find was the most challenging part of being on the tour?
The most challenging part of being an independent band on this tour is that we are doing everything ourselves. It is difficult to keep up with some of the bigger bands when you have so many responsibilities to take care of. Other bands have roadies, tour managers, caterers, and drivers and we have to fill these roles for ourselves and each other everyday.

I read that this is your second Warped Tour.  The first time around you went without a guarantee of playing.  How did it work out?
Last year we were basically traveling merchants, playing our music through iPods to anyone who would listen. We missed out on our true passion which is being able to perform in front of an audience. This year we get to fulfill that passion and we have found that we definitely get a great deal more respect from our peers and fans alike.

How do you creatively market and promote your music?
One of the powerful marketing tools we have is using our own personalities. Last year there was a bigger focus on pushing the quantity of sales because we thought it would lead to a larger fan base. However this year we are taking a more relaxed and personal approach, taking more time to talk to individual people and trying to make a lasting connection between ourselves and our fans. We have found that this creates the most loyal audience and we always want to be in touch with people who love the music we create.

What are some of the challenges you’ve experienced as an independent band?
We are in a unique position as a Canadian band that primarily tours the US. Touring is a difficult process for us. We have to apply for our own work visas in order to legally perform in the States.

What are some of the advantages?
We get to call all our own shots, and make the music we want to make. There is no one telling us what to do.

What’s next for Lacerda? Another tour? New projects in the works?
After Warped Tour we plan on going home to record a new single, which will be released early in the fall along with a music video. This release will be followed by an east coast tour. We also have tentative plans for a west coast tour later in the fall. Most of the coming winter months will be spent on writing and recording our first full-length record!

Become a fan on facebook.

Follow Lacerda on Twitter

Download their music on iTunes

Artists vs. Labels – The Value of Trust & Information In The Music Industry

By George Howard
(follow George on Twitter)

My last two pieces for the TuneCore blog have been lists attempting to dispel some common (or uncommon) misconceptions regarding the music industry at large, and marketing and success in the music industry, specifically (you can find those lists here and here).

A big reason I wrote those lists was to highlight how uneven the playing field is when it comes to the information a label has versus the information that most artists have. Intentionally or not, there tends to exist a huge gap between what a label knows and what an artist knows.  Because of this gap the parties tend not to trust each other.  This lack of trust causes serious, and, I believe, surprising problems in the music industry.

When two individuals/companies — both with a high degree of “ethical fiber” — determine that they want to do business together, the costs and work are petty easy.  Legal fees, and other costs associated with getting information on one another can be reduced to next-to-nothing saving each company/individual money and time that can (and should) be better spent creating the things they value.

Contrast these minimal “transactions costs” against transaction costs when the two dont trust each other; the “ethical fiber” of the relationship is absent.  In this case — a scenario where there is no trust or transparency (and thus no possible way of knowing if the two value the same things) — the parties take every precaution to avoid any and every possible outcome – in other words, it becomes not how to work together to succeed, but how to CYA when something goes wrong.  Plan for failure and deceit..  This means contracts must be drafted and redrafted, financials must be audited and re-audited, background checks must be paid for, and the “getting to know each other period” (a euphemism for “trying to determine not if, but how badly you’re trying to screw me”) — with all its associated expensive travel and entertainment costs — must take place.

I firmly believe that any time two parties decide to work together in any material capacity, irrespective of the “ethical fiber” involved, it is best to get to know one another and write an agreement around what each party expects of the other. However, there clearly is a spectrum, and upon one end sits a quick, easy(ish) and inexpensive process with respect to “transaction costs”, and at the other end a living hell of obfuscations, preparing for the worst and expenses.

Historically, at the hellish end of the spectrum lives the deals between artists and labels.

To be clear, there are many labels who operate ethically and with transparency, and even when the labels have acted less than ethically or transparently, they are not exclusively to blame for the high transaction costs; the artists often come to these negotiations with an embarrassingly low amount of  knowledge given the seriousness of what they’re about to enter into (what percentage of artists who have signed agreements with labels can articulate what a controlled composition is?).

However, whomever is to blame, make no mistake that it is this unbalance — this information asymmetry — between artists and labels that has led to not only a sense (right or wrong) that labels are out to screw artists, but, ultimately, to the inexorable systemic failure of the historic recording industry.

You simply cannot build a business on information asymmetry that has any kind of real durability.  As with any corrupt system (whether the corruption was intentional or just sort of seeped in over time), those within the system have two choices: 1. Become corrupt themselves; or 2. Leave.  A non-corrupt person in a corrupt environment cannot stay uncorrupted.

At a certain point (and, let’s not kid ourselves, that point was pretty much the inception of the recorded music era), corruption took root, and the business side of things attempted to maintain (if not increase) the information asymmetry between themselves and the artists.  You need look no further than one of ASCAP’s raison d’etre’s to see how early and profoundly this information asymmetry developed. ASCAP pays writers directly — bypassing publishers — because they believed that the publishers would never pay the writer’s their share of public performance income (a practice that continue to this day, by the way).

If you don’t believe this information asymmetry still exists, get your hands on a label or publishing agreement; get your hands on a royalty statement from most labels to artists.  I defy you to make heads or tails out of it, even if you’re an accountant and it’s your money.

Again, some portion of the blame must be placed on the artists.  Urban legend aside, it’s unlikely that too many of these contracts were signed under the duress of gunpoint.  Rather (and this is more sad than gunpoint) the artists felt incapable of understanding, and determined that even if they did understand they really had no negotiating leverage, and so they just sort of shrugged and signed on the dotted line (Tom Waits: “The large print giveth, and the small print taketh away.”).

Too much of this behavior — artists (rightly or wrongly) feeling screwed; labels (intentionally or not) creating increasingly draconian agreements — and you wind up with relationships between parties that are strained to the point of breaking.  I remember distinctly the cognitive dissonance associated with spending weeks (months, often) battling heatedly back and forth with an artist (and representatives) over contract details, only to finally make the deal and then have to then work collaboratively and creatively with this person who had for many months been my adversary.  How do you recover from this? Often you don’t.

I would wager that, if truth be told, virtually every artist believes that any agreement presented to them by a label/publisher is severely skewed in the favor of the label. Whether this is true or not (it’s not) is irrelevant; it speaks to the lack of ethical fiber — based on information asymmetry and lack of transparency — endemic to this business.

It speaks to why these relationships fail far more often than they succeed.

It speaks to the dire need for changes to increase the parity of knowledge and the transparency.

It speaks to the dire need for artists to become better educated about the business and its associated instruments (contracts, etc.).

If we make these changes, the artists will be better able to grasp the good and the bad of the agreements.  This will lead to understanding, and then to empathy.  Once empathy enters into a relationship, you can actually assess if there is value alignment.  Once assessed, decisions with respect to whether or not to work together become easily made; transaction costs goes down and money and time are spent doing what we got into the business to do in the first place: create art that sustains us emotionally and financially.

The lists, while fun to write, were really created in order to shine a light on misnomers that create a power dynamic — based upon information asymmetry — that is severely skewed towards the label and away from the individual artist.  The goal is to provide tools for the artists to take the power back.  This does not mean that the artists must eschew labels, but rather that, through knowledge, they will have more and better choices.

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George Howard is the former president of Rykodisc. He currently advises numerous entertainment and non-entertainment firms and individuals. Additionally, he is the Executive Editor of Artists House Music and is a Professor and Executive in Residence in the college of Business Administration at Loyola, New Orleans. He is most easily found on Twitter at: @gah650